FRC’s 2017/18 thematic reviews expected to prompt improvements

PN 73/16

15 Dec 2016

The Financial Reporting Council (FRC) will, in 2017, undertake thematic reviews of certain aspects of companies’ corporate reports and audits, where it believes there is scope for improvement and particular shareholder interest.

The FRC will write to a number of companies prior to their year-end, informing them that it will review disclosures in their next published reports, specifying the topic under review. The aim of this monitoring activity is to drive continuous improvement in the quality of corporate reporting and to identify good examples of clear and concise disclosures. The FRC will share these good examples to help others raise the quality of their reporting.

When reviewing any report published in 2017, the FRC will also monitor and report on companies’ disclosures relating to:

The impact of new IFRSs; including the timeliness and usefulness of the information provided

Principal risks and uncertainties relating to Brexit and the low interest rate environment and the extent to which they are company specific

The reviews will build on the FRC’s findings published in its Annual Review of Corporate Reporting and its thematic review of APMs disclosed in companies’ interim financial statements. Further information on the FRC’s approach to the thematic reviews is attached to this Press Release.

Audit

The topics are:

Auditors’ responsibilities relating to other information

Audit firm governance and culture

Materiality: update on 2013 thematic review

The FRC will consider the six largest audit firms’ policies and procedures and will review a number of audits in these specific areas to make comparison with a view to identifying both good practice and scope for improvement. The aim of this monitoring activity is to drive continuous improvement in the quality of audit. The FRC will share these good practices to help others raise the quality of audit.

Priority sectors

In addition to these thematic reviews, the FRC will, in its routine corporate reporting and audit monitoring activities, give some priority to reports and audits in the property, travel and leisure and support services sectors. Audit monitoring will additionally also focus on the financial service sector.

Audit monitoring will pay particular attention in the audits reviewed to changes in auditor appointment, audit of pension balances and disclosures and the audit of impact of currency fluctuations.

Notes to editors:

The FRC is responsible for promoting high quality corporate governance and reporting to foster investment. We are the UK competent authority for audit and set the UK Corporate Governance and Stewardship Codes as well as UK standards for accounting, auditing and actuarial work. We represent UK interests in international standard-setting. We also monitor and take action to promote the quality of corporate reporting and auditing. We operate independent enforcement arrangements for accountants and actuaries; and oversee the regulatory activities of the accountancy and actuarial professional bodies.

The FRC published ‘Annual Review of Corporate Reporting 2015/2016’ on 21 October. The Annual Review provides the FRC’s assessment of corporate reporting in the UK based on broad outreach and evidence, including that obtained from the FRC’s own monitoring work, performed by CRR, on cases opened in the year to 31 March 2016.

The FRC published ‘Developments in Audit 2015/16’ on 14 July 2016. The report provides the FRC’s assessment of justifiable confidence in UK audit and also summarises the current ‘state of play’ as seen by the FRC and its stakeholders. It is supplemented by a more detailed report of the FRC’s audit related activities and evidence gathering.

The FRC published ‘Audit quality thematic review: Root cause analysis’ on 16 September 2016. The study reviewed the root cause analysis performed by audit firms, relating to audit inspection findings, to provide a better understanding of how audits can improve.